How a group of home buyers in Gurgaon tamed DLF

20 May 2014
(Left to right) Amit Jain, Sanjay Bhasin and Harsh Sehgal of the Belaire Owners Association, which has taken on DLF.

On Monday, 19 May, the Competition Appellate Tribunal, a statutory organisation established to hear and dispose of appeals made by the Competition Commission of India, upheld a penalty of Rs 630 crore that had been slapped on the real-estate firm DLF by the CCI in 2011. The penaltywas imposedafter flat-buyers associations in DLF Park Palace and The Belaire in Gurgaon complained that possession of their apartments was being delayed by DLF because the firm had decided to build more floors than originally planned in the two projects. The decision also highlighted the fact that various clauses in the buyers agreement, such as one on alteration of building structure, were penned to DLF's advantage. The Competition Appellate Tribunal has upheld the penalty and stated that the abuse of DLF's dominant position is to be dealt with firmly.

In this extract from our January 2014 reportage piece on how brokers of land and power built Gurgaon, Praveen Donthi talks to some of the affected buyers of various DLF projects at a time when the COMPAT case was still under consideration.

In 2011 a shot was fired across the bow of Gurgaon’s leading real estate developer by the Competition Commission of India (CCI), which fined DLF Rs 630 crore for various abuses in a case involving owners of flats in The Belaire, an apartment complex in east Gurgaon. Situated not far from the Delhi border and the road to Faridabad, The Belaire is made up of five 29-storey towers that went on the market in 2006. Due to be completed by January 2010, construction of the complex dragged on; some owners still don’t have possession of their flats. In the meantime, DLF revised the building plans from what had been stipulated in the builder-buyer agreements. When owners complained, the developer took recourse to the complex, manipulative clauses in those same agreements to brush them aside.

A group of Belaire buyers who had found each other airing similar grievances online soon formed the Belaire Owners Association (BOA). In May 2010, the association filed charges with the CCI, accusing DLF of abusing its dominant position in the market in order to enforce unscrupulous contracts on buyers. Sanjay Bhasin, president of the association and vice president at the telecom company Viom Networks, enumerated the residents’ complaints for me in broad strokes: construction of the Belaire apartment complex had been delayed; DLF had effected a unilateral change in the building plans; and there was a suppression of terms in buyers’ contracts.

The CCI soon launched an inquiry and, for the first time, many of the real estate practices that had helped build and populate Gurgaon were brought to light. It emerged that when it collected money from buyers, DLF had no approvals for The Belaire—not for the original 19 floors it sold, nor the additional ten it later tacked on to each tower. Other related manipulations included violation of the state-mandated floor area ratio (FAR) restriction—the ratio of a building’s total floor space (on all storeys) to the size of the plot on which it stands. The Belaire plot took up only 6.67 acres, which the owners’ association calculated was 14 acres less than would be necessary to meet the FAR requirements. The CCI found that Belaire residents had technically paid for and were entitled to land that had instead been left open to further development. Sanjay Sharma of Qubrex brokerage helped the Belaire owners with research for the case. He told me that violating FAR norms “has become the easiest way of making money for the builders”. When I visited Belaire with Bhasin and other members of the BOA, I noticed a cordoned-off patch of grass in the middle of the complex. Bhasin told me that it was village panchayat land that is still under dispute.

Manoj Pandey, the director general of the CCI, submitted his case report in late 2010. In it, he upheld the owners’ allegations and noted that DLF, HUDA and the Haryana DTCP hadn’t cooperated with the investigation. He held the authorities guilty of connivance, and recommended a penal enquiry. “Was DLF so powerful that Director, Town Planning could have just ignored the infringements or Town Planner did not perform his duties well,” Pandey wrote. “The way Director, Town Planning has not answered to notices issued by this office (six repeated notices on various dates) only show that he was perhaps aware of these infringements but chose to ignore them.”

In its arguments against Pandey’s report to the CCI, DLF questioned the validity of the findings by downplaying its market dominance—while also arguing that restrictions on dominance only came into effect after 20 May 2009, when the national Competition Act was amended, long after the company had sold the Belaire apartments. As for the “abusive” clauses found in its contracts, these were “industry practice”, it claimed. For the first time, DLF also scaled down its estimate of the size of its Gurgaon holdings from 3,500 acres to 1,650 acres. It denied the accusation of dominating the luxury real estate market by arguing—incredibly—that no such segment as “high-end residential accommodation” existed in Gurgaon. It also tried to argue that it couldn’t be considered dominant because, it said, 85 to 90 percent of its bookings happen through brokers, who sell multiple properties. To support its arguments, DLF submitted two reports—one from Jones Lang Lasalle Meghraj, an international property consultant with whom they have a business relationship, and one from Genesis Analytics, a consulting firm operating in emerging markets—and one affidavit from a broker.

DLF’s arguments appeared particularly absurd given the sorts of claims freely made by KP Singh in his autobiography, and in the company’s marketing material. Eventually the CCI’s 2011 judgement, which DLF unsuccessfully tried to overturn at the Delhi High Court, agreed with the director general’s findings. In some cases, though DLF was technically abiding by the letter of its buyers’ agreements, the contracts were deemed to be “highly abusive”. The Commission ruled that it was “clear that DLF has been grossly abusing its dominant position, and that too against a vulnerable section of consumers … There appear to be no mitigating factors for taking a lenient view.” It also noted that, because DLF did not escrow funds from its various projects, there was no way to guarantee that money earned from the future residents of one proposed building would not be funnelled towards another speculative deal. The commission slapped the company with the Rs 630-crore fine. DLF then took its appeal to the Competition Appellate Tribunal, which has stayed the CCI’s order while it rehears the case.

The Belaire Owners Association is one of an increasing number of organisations set up by homeowners to address misleading marketing practices and infrastructural failures at complexes like DLF’s Belaire, Regency Park, Park Place, and The Magnolias, and also at Raheja’s Atlantis. Unlike coalitions of village smallholders, many of these groups are made up of wealthy and well-connected business people and retirees who have the means to fight lengthy court cases.

An extract from ‘The Road to Gurgaon,’ published in The Caravan’s January 2014 issue. Read the story in full here.

Praveen Donthi  is a staff writer at The Caravan.